Also Of The High Court Of Bombay (With Regard To Questionno.4). — v. Nc: 2024:Khc:41370-Dbita

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 14 DAY OF OCTOBER, 2024 PRESENT| THE HON'BLE MR JUSTICE V KAMESWAR RAO AND THE HON'BLE MR JUSTICE S RACHAIAH |INCOME TAX APPEAL NO. 665 OF 2023 BETWEEN: 1.PR, COMMISSIONER OF INCOME TAX-2.BMTC COMPLEXKORAMANGALA BANGALORE2D.THE ASSISTANT COMMISSIONER OF INCOME TAX.CIRCLE-3(1)(1), BMTC COMPLEX|KORAMANGALA, BENGALURU APPELLANTS (BY SRI. SANMATHI E I, ADVOCATE) AND: 1.M/S TT STEEL SERVICE INDIA PVT. LTDDigitally signedPLOT NO. 33 AND 34,byBIDADI INDUSTRIAL AREASREEDHARANBANGALORERAMANAGARA TALUKSUSHMALAKSHMIBENGALURU - 562 109.Location: HIGHCOURT OFKARNATAKARESPONDENT(BY SRI. T SURYANARAYANA, SR. ADVOCATE FOR|SMT. TANMAYEE RAJKUMAR, ADVOCATE). THIS ITA FILED UNDER SEC.260-A OF THE INCOME TAX|ACT 1961, PRAYING TO SET ASIDE THE APPELLATE ORDER|DATED 06/04/2023 PASSED BY THE INCOME TAX APPELLATE.TRIBUNAL, Bo BENCH, BANGALORE, AS SOUGHT FOR, IN THE.RESPONDENT - ASSESSEES CASE, IN APPEAL PROCEEDINGS| NC: 2024:KHC:41370-DBITA No. 665 of 2023 NO. ITITPJA NO. 375/BANG/2021, ANNEXURE - A FOR A.Y)2016-17. THIS APPEAL, COMING ON FOR ADMISSION, THIS DAY,JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: HON'BLE MR JUSTICE V KAMESWAR RAO and | HON BLE MR JUSTICE S RACHAIAH ORAL JUDGMENT(PER: HON BLE MR JUSTICE V KAMESWAR RAO) The challenge in this appeal is to an order passed by tne.Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru dated06.04.7073.inappeal|proceedingsNo.,IT| TPA)No.375/Bang/2021 which were for the assessment year 2016-1/. 2.The learned counsel for the appellants submits that tnefollowingsubstantia].questionsoflawarise|for.consideration: — (1)“Whetner tne Tribunal was right’ innolaing tnat the reference made to TPO for.specified domestic transaction mentioned in|clause (i) of Section 92BA of tne Act is not.valid as the said provision nas been omitted|and as such addition made in respect of|Sd [TneedstObe|deleted|without|appreciating tnat reference made to TransferPricing Officer was in- accordancwithparameters of Section 92CA of the Act and.the amendment takes effect from 1/4/2027 - 3 - which|appliestoA.Y.7201/7-1andsubsequent years"? (ii) Whether on the facts and in the)circumstances of the case, the Tribunal's|order can be said as perverse in nature in.nolaing that omission of section 92BA(1) of|the Act w.e.f 1/4/2017 would amount to}nonexistence of the section from the date ofinsertion wnen it is settled position tnat tne|amendmentUnder|theActwouldbeapplicable to the relevant assessment year inwhich effect is contemplated and recorded a|finding contrary to scheme of the Act”? (iii) “Whether on the facts and in_ thecircumstances of the case, the Tribunal was|right in law in holding that in view of section|92BA (i) of the Act being omitted with effect|from1/4/2017wouldaMounttOnonexistence of section contrary to settled|position of law tnat tne law auring the)relevant A.Y. nas to be applied’? (iv) “Whether the Tribunal was right in fact|and in law in restricting Transfer Pricing|Aajustment to International Transaction withAssociated Enterprises only even when same|is contrary to Section 92CA of the Act and.wnen assesse /s providing service to botn AE|and Non-AE'’s where assesse has not madeany bifurcation of profit in book of account|as overall profit margin is recorded in books|witnout any data as to what would be thneprofits earned for non-AE"? 3.The learned Senior Counsel appearing for therespondent would, at the outset, submit that no substantialquestions of law arise for consideration, as the questions urgedin the appeal are covered by the judgment of Co-ordinate|Bench of this Court (with regard to questions Nos. 1 to 3) and_ NC: 2024:KHC:41370-DBITA No. 665 of 2023 also of the High Court of Bombay (with regard to question|No.4). — 3.The learned Senior Counsel appearing for therespondent would, at the outset, submit that no substantialquestions of law arise for consideration, as the questions urgedin the appeal are covered by the judgment of Co-ordinate|Bench of this Court (with regard to questions Nos. 1 to 3) and_ NC: 2024:KHC:41370-DBITA No. 665 of 2023 also of the High Court of Bombay (with regard to question|No.4). — 4. On questions No. 1 to 3, he states the same are.primarily relatable to Section 92(BA)(i) which provision has—been omitted by the Finance Act,2017 with effect from.01.04.2017. Tne Senior Counsel states though the assessment.year is prior to the omission of the said provision with effect.from 01.04.2017, but in view of the judgment of the Co-ordinate Bench wherein the Co-ordinate Bench has followed the|judgment of the Apex Court inKohlapur Canesugar Works|Ltd., Vs. Union of India|reported inAIR J2ZOOO SC 81and.also in view of the judgment of the Co-ordinate Bench of this)Court In.M/s. GE Thermometrics India private limited Vsthe Commissioner of Income tax and another ITA Nos. 87/76/2008 and 87/77/0the same need to be rejected.Learned Senior Counsel also submits that insofar as question.No.4 is concerned, the same is also covered against the.Revenue in terms of the juaqgment of Bombay High Court in thecase ofCommissioner of Income-tax Vs. Thyssen KruppIndustriesIndia(P.)Ltd.,reported6/[2016]7O NC: 2024:KHC:41370-DBITA No. 665 of 2023 TAXMANN.COM329(Bombay),morespecifically,paragraphs Nos.2(a) and 3(d) and (e) thereof. Tne above.Submissions made by the learned Senior Counsel for therespondent on the basis of the judgments could not be disputedby the counsel for the appellants. 5.Having noted the submissions made by the learnedcounsel for the parties, insofar as issues No. 1 to 3 areconcerned, we find that, the Co-ordinate Bench of this Court in.the case of.PR. Commissioner of Income Tax-7 andanother Vs. M/s. Texport overseas Pvt. Ltd.InITANo.392/2018along withITA No.170/2019decided on12.12.2019 has in paragraphs No.3 onwards, has stated as.Under:| “3. It [Is the contention of learned Advocatesappearing for revenue that tribunal was not Justifiedin arriving at a conclusion that Clause (i) of Section92BA of the Act, which had been omitted w.e.f.01.04.2017 would be applicable retrospectively bypresuming the retrospectivity, particularly when thestatue itself explicitly stated it to be prospective innature. As such they have sought for formulatingsubstantial questions of law and have sought foranswering the same in favour of revenue andagainst the assessee. 4, Sri.E.I.Sanmathi, learned counsel appearing forrevenue/appellantIn|TTA|No.1/70/2019wouldcontend that even the disallowance made by the AO|under Section 14A r/w Section 8(2)(1ii) of IncomeTax Rules for a sum of Rs.14,88,8/0/- by holdingthat there was no exempted income and as sucnaisallowance could not have been made even thougnSaid provision was rightly invoked by AO, and assucn setting aside tne disallowance is erroneous.Hence, he prays for substantial question of law asformulatedIn|theappealmemorandum(ITA|1/70/2019) be formulated, aajudicated and answeredin favour of assessee. 5. Having heard learnea Advocates appearing forparties and on perusal of records in general andorder passed by tribunal in particular it is clearlynoticeable that Clause (i) of Section 92BA of the Actcame to be omitted w.e.f. 01.04.2019 by FinanceAct, 2014. As to wnether omission would save theacts is an issue which is no more res-intigra in thelignt of authoritative pronouncement of Hon’ble ApexCourt in the metter ofKOHLAPUR CANESUGARWORKS LTD. vy. UNION OF INDIreported in |AIR 2000 SC 81] whnereunder Apex Court nas examinedtheeffectOf|repealOf|adStatute VIS@A-VISdeletion/adaition of a provision in an enactment andits effect thereof. The tmport of Section 6 of GeneralClauses Act has also Deen examined and it came tobe held: NC: 2024:KHC:41370-DBITA No. 665 of 2023 5. Having heard learnea Advocates appearing forparties and on perusal of records in general andorder passed by tribunal in particular it is clearlynoticeable that Clause (i) of Section 92BA of the Actcame to be omitted w.e.f. 01.04.2019 by FinanceAct, 2014. As to wnether omission would save theacts is an issue which is no more res-intigra in thelignt of authoritative pronouncement of Hon’ble ApexCourt in the metter ofKOHLAPUR CANESUGARWORKS LTD. vy. UNION OF INDIreported in |AIR 2000 SC 81] whnereunder Apex Court nas examinedtheeffectOf|repealOf|adStatute VIS@A-VISdeletion/adaition of a provision in an enactment andits effect thereof. The tmport of Section 6 of GeneralClauses Act has also Deen examined and it came tobe held: NC: 2024:KHC:41370-DBITA No. 665 of 2023 37,The position ts well known tnat at}COmMmMmlaw,|thenormaleffectOf|repealing a statute or deleting a provisionis to obliterate it from the statute-book ascompletely as if it nad never been passed,and the statute must De considered as alaw that never existed. To this rule, anexception is engrafted by the provisionsof Section 6(1). Ifa provision ofa statute|ISunconaitionally|omittedwithoutadSavingclauseIn|fAVOUT|Of|penaingproceedings, all actions must stop wherethe omission finds them, and if final reliefnas not been granted before the omissiongoes into effect, it cannot be grantedafterwards. Savings ofthenaturecontained in Section 6 or in special ActsITlamodifytheposition.Thustheoperation of repeal or deletion as to thefuture and the past largely depends onthe savings applicable. In a case wnere aparticular provision in a statute is omittedand in its place another provision dealingwith the same contingency is introducedwithout a saving clause in favour opending proceedings then it can bereasonably inferred that the intention ofthelegisiatureIS that.thepending|proceedings shall not continue but freshproceedings for the same purpose may beinitiated under the new provision. “ NC: 2024:KHC:41370-DBITA No. 665 of 2023 6.Tn}fact,CoordinateBenchUnder|similarcircumstances had examined the effect of omissionof sub-section (9) to Section 10B of the Act w.e.f.01.04.2004 by Finance Act, 2003 and held thatthere was no saving clause or provision introducedby way of amenament by omitting sub-section (9) ofSection 10B. In the metter OfGENERAL FINANCECO. vs. ACIT,.which Juagment has also been takennote of by the tribunal while repelling the contentionraised by revenue with regard to retrospectivity ofSection 92BA(i) of the Act. Thus, when clause (i) ofSection 92BA Nnaving been omitted by the FinanceAct, 2017, with effect from 01.07.2017 from tneStatute the resultant effect is that it had never beenpassed and to be considered as a law never beenexisted. Hence, decision taken by tne AssessingOfficer under the effect of Section QOZB!I anreference made to the order of Transfer PricingOfficer-TOP under Section 972CA could be invalid andbad In law. 7. It is for this precise reason, tribunal has_ rightlynela that order passed by the TPO and DRP Isunsustainable in the eyes of law. The said finding tsbased on the autnoritative principles enunciated bytne Hon’ble Supreme Court inKolhapur CanesugarWorksLtdreferred to herein supra which nas beenfollowed by Co-ordinate Bench of this Court in thematter ofM/s.GEThermometrias Indja PrivateLtd., Stated supra. AS sucn we are of the considered view that first substantial question of law raised inthe appeal by the revenue in respective appealmemorandum could not erise for considerationparticularly wnen tne said issue being no more resintegra. 7. It is for this precise reason, tribunal has_ rightlynela that order passed by the TPO and DRP Isunsustainable in the eyes of law. The said finding tsbased on the autnoritative principles enunciated bytne Hon’ble Supreme Court inKolhapur CanesugarWorksLtdreferred to herein supra which nas beenfollowed by Co-ordinate Bench of this Court in thematter ofM/s.GEThermometrias Indja PrivateLtd., Stated supra. AS sucn we are of the considered view that first substantial question of law raised inthe appeal by the revenue in respective appealmemorandum could not erise for considerationparticularly wnen tne said issue being no more resintegra. 8. Insofar as question No.2 Is concerned, we findfrom the order of the Tribunal that issue relating tothe deletion of disallowance made by the AssessingOfficer nas been remitted back to tne AssessingOfficer which finding is based on factual aspectswhich would not call for interference by us, that too,by formulating substantial question of law. TheAssessing Officer has to undertake the exercise offactual determination. As such, witnout expressingany opinion on merits with regard to question No.2formulated by the revenue in the respective appeals,we proceed to pass the following: ORDER /) Both tne appeals f.e., ITA No.392/2018and ITA No.1/70/2019 are dismissed. ii) Order dated 22.12.2017 passed by the.Income Tax Appellate Tribunal, BangaloreIn|IT(TPJA No.1722/Bang/201/7ISaffirmed.” 6.Insofar as issue No.4 is concerned, the substantialquestion of law framed by the Bombay High Court is identical to.the question No.4 in this appeal. Tne question is reproduced as_under: NC: 2024:KHC:41370-DBITA No. 665 of 2023 (a)|WhetherOf)thefactsandthecircumstances of the case and law, the Tribunal|was Justified in law in restricting tne TransferPricing (TP) adjustment only to the_ transactionbetween tne Associated Enterprises (AEs)? J.The findings of the Bombay High Court on theaforesaid question can be seen in paragrapn Nos. 3(d) and (e).of the judgment as under: XXX XXX XXX _XXX XXX XXX (d) The grievance of the Revenue before us is thatthe adjustment is not to be restricted only In respect of|transactions entered into with the AE. Al/l the transactionsof the respondent-Assessee would Nave necessarily be|varied/aajusted by the margin arrived at by the TPO to|arrive at the ALP. (e) We find that in terms of Chapter xX of tne Act,re-determination of the consideration is to be done only|withregaratoIncomeArisingfromInternationalTransactions on determination of ALP. The adjustment|which is mandated is only in respect of International|Transaction and not transactions entered into by assessee|withindependentunrelatedthird|parties.ThisISparticularly so as there is no issue of avoidance of tax|reguiring adjustment in the valuation in respect oftransactions entered into with independent third parties. The adjustment as proposed by the Revenue if allowed|would result in increasing the profit in respect of| NC: 2024:KHC:41370-DBITA No. 665 of 2023 transactions entered into with non-AE. This adjustment Isbeyond the scope and ambit of Chapter X of the Act. | (e) We find that in terms of Chapter xX of tne Act,re-determination of the consideration is to be done only|withregaratoIncomeArisingfromInternationalTransactions on determination of ALP. The adjustment|which is mandated is only in respect of International|Transaction and not transactions entered into by assessee|withindependentunrelatedthird|parties.ThisISparticularly so as there is no issue of avoidance of tax|reguiring adjustment in the valuation in respect oftransactions entered into with independent third parties. The adjustment as proposed by the Revenue if allowed|would result in increasing the profit in respect of| NC: 2024:KHC:41370-DBITA No. 665 of 2023 transactions entered into with non-AE. This adjustment Isbeyond the scope and ambit of Chapter X of the Act. | 8.At this stage, we may state here that the judgmentof the Co-ordinate Bench In|PR. Commissioner of [ncome Tax-/|and another Vs. M/s, Texport Overseas Private LimitedWas |taken in appeal to the Hon'ble Supreme Court, but the tax.effect being less than prescribed limit, the appeal was.withdrawn. Since the issue with regard question Nos. 1 to 3 is.covered by the judgment of Co-ordinate Bench of this Court,|for parity of reasons, we hold, the questions are notsustainable. Insofar as, question No.4 is concerned, though the|learned Senior Counsel! for the respondent nas also relied uponanother judgment of Bombay High Court in the case of.Commissioner of Income Tax-8, Mumbai Vs Phoenix Mecvano—(India)(P.) Ltd. [2019] 108 taxmann.com 124 (Bombay)wherein according to him, the appeal was filed against theorder of the Tribunal, wherein Tribunal has relied upon thejudgment of the Bombay High Court in the case ofCommissioner of Income-tax Vs Thyssen Krupp Industries India.(P.) Ltd.,(supra)which judgment (in the case ofCommliss/ioneof Income Tax-8, Mumbai Vs Phoenix Mecvano (India)(P.) Ltd NC: 2024:KHC:41370-DBITA No. 665 of 2023 (Supra)was taken in appeal before the Hon'ble Supreme Court|tneSameWaSdismissed.inSLP|No.2234/2018dated05.02.7018. 9.|In view of the fact that the issue relatable toquestion No.4 is covered by the judgment of the High Court ofBombay inCommissioner of Income-tax Vs Thyssen Krupp|Industries India (P.) Ltd.,and also|Commissioner of [ncomeTax-8, Mumbai Vs Phoenix Mecvano (India)(P.) Ltd., which)nave attained finality till the Hon ble Supreme Court, we find.no merit insofar as question No.4 is concerned. Accordingly, the.appeal being without merit is dismissed. The questions of law.are answered in favour of Assessee and against the Revenue. No Costs. JS/-.List No.: 1 S| No.: 16) Sd/-|(V KAMESWAR RAO).JUDGE| Sd/-|(S RACHAIAH)JUDGE.